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Collateral Composition, Diversification Risk, and Systemically Important Merchant Banks
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SYSNO ASEP 0433271 Document Type J - Journal Article R&D Document Type Journal Article Subsidiary J Článek ve WOS Title Collateral Composition, Diversification Risk, and Systemically Important Merchant Banks Author(s) Derviz, Alexis (UTIA-B) RID, ORCID Number of authors 1 Source Title Journal of Financial Stability. - : Elsevier - ISSN 1572-3089
Roč. 14, Special Issue (2014), s. 23-34Number of pages 12 s. Publication form Print - P Language eng - English Country US - United States Keywords collateral ; systemic risk ; merchant bank ; CoCo Subject RIV AH - Economics R&D Projects GA13-11983S GA ČR - Czech Science Foundation (CSF) Institutional support UTIA-B - RVO:67985556 UT WOS 000345115500003 EID SCOPUS 84909996700 DOI 10.1016/j.jfs.2014.03.001 Annotation The impact of collateral diversification by non-financial firms on systemic risk is studied in a general equilibrium model with standard production functions and mixed debt-equity financing. Systemic risk comes about as soon as firms diversify their collateral by holding claims on a big wholesale (merchant) bank whose asset side includes claims on the same producer set. The merchant bank sector proves to be fragile (has a short distance to default) regardless of competition. In this setting, the policy response, consisting in official guarantees for the merchant bank’s liabilities, entails considerable government loss risk. An alternative without the need for public sector involvement is to encourage systemically important merchant banks to introduce a simple bail-in mechanism by restricting their liabilities to contingent convertible bonds. Workplace Institute of Information Theory and Automation Contact Markéta Votavová, votavova@utia.cas.cz, Tel.: 266 052 201. Year of Publishing 2015
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